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Volume 21 No. 30

Law and Politics

Two days after a Supreme Court ruling cleared the way for sports betting in any state that wants it, the CEO of William Hill, the leading Nevada sportsbook, stood in a New York airport contemplating a dizzying turn of fate as he searched for a flight that would get him home to Las Vegas in time to use his NHL playoff tickets.

 

Joe Asher had already had a whirlwind week — and it was only Wednesday. After the high court issued its ruling, he and his staff celebrated at a Vegas club long into the night before he flew East Tuesday morning so that he could continue conversations with the executives of Monmouth Park in New Jersey, a racetrack in the state that was now at the forefront of America’s changing relationship with sports and gambling.

Monmouth wasn’t the only place that can’t wait to have a discussion with Asher. Once an outlier in a U.S. sports industry that cast gambling as anathema, London-based William Hill suddenly finds itself high on the call list of sports properties anticipating a gold rush.

“We’ve been getting bombarded — absolutely bombarded — with in-bounds from sports teams in the last 48 hours,” said Asher, whose company bet big on U.S. expansion when it moved into Nevada in 2012. “We can’t even keep up with them.” 

Hill’s newfound dilemma is just one of the outcomes of the Supreme Court’s landmark decision last week. The torrent of money soon to be unleashed for people throughout the sports industry is another, as is the fact that two factions long at odds over the issue of gambling in sports — the leagues and the gaming industry — now must find a way to work together for each other’s benefit. 

Among the matters that must be sorted out before the money can begin flowing are where bets can be placed, whether they can be done on mobile devices and the many issues attached to integrity.

New Jersey’s Monmouth Park could be accepting legal bets as soon as next month.
Photo: getty images

Those in sports see an upside primarily in two areas: The creation of a new sponsorship category in a sector hungry to create a customer base and an increase in engagement that could stem declines in viewership. Both of those will be affected by the ways in which states that legalize sports betting choose to regulate it.

“It’s all going to depend on what the law and regulation turn out to be,” Asher said. “Is it retail [with betting only at brick-and-mortar sportsbooks]? Is it retail plus mobile? How can you get a mobile account? Can you sign up remotely or is it like in Nevada where you have to go into a sportsbook to sign up? That would change your marketing strategy.”

• • • • •

William Hill will be among the first, if not the first, companies to take a legal bet in New Jersey when wagering begins next month thanks to a play it executed last year when it renovated a sports bar at Monmouth Park horse track in the hope that it could eventually turn it into a full-service sportsbook.

More importantly, William Hill anticipates expansion as other states legalize sports gambling. Gaming research firm Eilers & Krejcik projected 14 states will legalize sports betting in the next two years, with the footprint growing to 32 states within five years.

William Hill can expect plenty of company, and competition, in many of those states. Churchill Downs Inc., which operates the largest online horse betting site in the nation, last week announced its plans to enter the sportsbook business through deals with white-label gaming platform provider SB Tech and Atlantic City hotel casino operator Golden Nugget. The latter deal will provide Churchill with a transferable online gaming license to operate in New Jersey. That could be a blueprint that other sportsbooks follow.

Also last week, Ireland-based sportsbook Paddy Power Betfair confirmed talks between its nascent U.S. operation and daily fantasy power FanDuel. While FanDuel’s valuable customer base is what the sportsbook would want most, the combined venture also likely would give it access to FanDuel’s New Jersey online license.

As all of that action percolates, consider this: When New Jersey cuts the ribbon on sports betting next month, it will open the spigot on a market projected to be worth $350 million to $500 million in annual gaming revenue, based on industry analysts’ estimates.

In order to place wagers, bettors will need to open sportsbook accounts and deposit funds. Thanks to its beachhead at the horse track, William Hill already has an inroad to the state’s horseplayers. Similarly, the casino operators know their regulars. But that leaves a vast swath of sports fans who don’t often gamble.

This will be about customer acquisition, with fans of the New Jersey teams atop the prospect list.

Expect a similar dynamic to play out state by state. This is not to say that all states will look like New Jersey. Another early adopter, Mississippi, has approved sports betting only within the walls of its casinos. Pennsylvania cleared the way for broad adoption of sports betting as part of a larger casino package last year, but because it requires a $10 million up-front payment from bookmakers and includes a tax rate of about 35 percent, many in gaming question its viability. West Virginia expects to open this summer, with mobile betting available across the state, but there are no pro teams within its borders.

• • • • •

Before returning to the U.S. as president of the San Jose Earthquakes last year, Tom Fox spent seven seasons in the English Premier League, first as chief commercial officer of Arsenal and then as CEO of Aston Villa. In recent months, he’s had a steady flow of calls from friends who run NFL and NBA teams, curious about the implications of expanded sports betting. Fox described a competitive landscape of bookmakers hungry to connect with each club’s fan base, using those contacts to drive traffic and build loyalty.

“Sportsbooks are by and large commodities that then have a brand associated with them,” said Chris Grove, managing director of sports and emerging verticals at Eilers & Krejcik Gaming. “What separates one sportsbook from another is not that visible to the consumer. It becomes a war of effective marketing.”

Fox agrees. “Now, it’s like Amazon,” he said. “They want to get you on their platform. Once all your transactions are happening there, if you like the offering and the odds they are giving you, you will stay. What they want from the sports teams is customer acquisition and data bases.”

That is instructive for those considering the link between varieties of state regulation and the way business will flow as a result. Those states that see sports betting solely as a way to drive people into casinos and horse tracks will set up similarly to the way the United Kingdom used to look, with a handful of brick-and-mortar brands advertising and activating sponsorship to drive foot traffic.

Those states that embrace a broader model with remote account sign-ups, wagering via mobile apps and enough licensed providers to stoke competition will yield a more robust sponsor market for sports properties.

While the sports leagues and gaming companies have been lobbying legislators on those issues in many states for the last few months, the Supreme Court verdict is likely to hasten decisions.

“For so many jurisdictions, the prospect of the court decision was a reason to tread slowly,” said Geoff Freeman, CEO of the American Gaming Association, the leading casino industry trade group. “The removal of PASPA is going to speed this thing up exponentially. I think we’re going to see an expansion for sports betting in a fashion more rapid than we’ve seen in any other type of gaming — whether that be online gaming, brick-and-mortar expansion or lottery expansion. This thing is going to take off quickly.”

While there is now discussion about intervention from Congress — the long-stated preference of all the leagues, which would prefer to work within the same confines in every state — most see that as unlikely.

“I agree with the leagues that consistency across state lines in terms of policy would be helpful,” Freeman said. “But I think there’s a much easier way to get there. And that’s for the leagues and the industry to get on the same page in terms of some of these critical issues. If [that happens] our ability to adopt smart policy is exponentially greater. If we’re not arguing with one another, if we’re not putting state legislators in a position of having to choose one over another, if we can simply come together and lay out what we believe to be a good framework — we will win in terms of good policy nine times out of 10. That is a much faster, much more sensible approach toward getting the consistency we’re all looking for.”

While the leagues and gaming interests have sparred on several issues, both now indicate an increasing willingness to work together.

“For sports betting to succeed for bookmakers in a way that also protects the integrity of the sports leagues, there needs to be cooperation between the leagues, the states and the bookmakers,” said Bryan Seeley, senior vice president of investigations and deputy general counsel at MLB, who has lobbied state legislators on the matter for the league. “We have a number of disagreements about what laws should look like. But ultimately none of us wants the integrity of sports to suffer. Everybody wants fan engagement to increase. And it would be a lot easier for us to all be on the same page when we’re lobbying in states.”

While it is clear that the royalty that the leagues have suggested easily could come as part of a commercial arrangement, Seeley said he isn’t sure that other wish-list items, such as access to anonymous, account-level betting data and full cooperation on investigations into suspicious betting, could be handled effectively without state mandates.

“If those requirements came out of some sort of private agreement rather than state law or state regulation, they’re still requirements and that’s fine,” Seeley said. “But the point is that there need to be requirements here. And those are most likely obtained in state law or state regulation.”

Last week’s ruling likely will expedite those legislative decisions, and the deals that will flow as a result. Asher said that acquaintances from across the U.S. sports business have called him in recent months to get a better feel for how bookmaking companies market their services.

Earlier this month, the CEO of a “prominent” U.S. sports franchise came to his office to discuss the potential to do business as William Hill expands its footprint.

 “People have been reaching out,” Asher said. “But now, you feel like you’re drinking from a water hose. Now it’s real.”

When the Supreme Court struck down PASPA last week, it opened the floodgates to a commercial opportunity that many in the sports industry anticipate to be generational. Some see not only possibilities, but peril. Here’s what to expect from five crucial corners of the sports business, all of which can expect significant impacts from this evolving landscape in the coming years.

 

For Leagues

A lot more lobbying. The NBA and Major League Baseball have been in the lead, taking their message to state legislators, who almost certainly will be the ones who determine how sports betting plays out in the U.S. While the court’s decision came as no surprise, it accelerates the urgency for the leagues to find sympathetic ears in the state houses. Conspicuously absent during those lobbying efforts, the NFL this week responded with a call for federal legislation — or at least minimum regulatory standards. Though that’s the preference of all the leagues, the likelihood that Congress would treat sports betting differently from all other forms of gambling seems slim. That leaves the leagues to continue to slug it out state by state.

For Teams

The potential upside for the teams is huge here, but like real estate it comes down to location, location, location. Sportsbook brands that offer products and services that are similar to each other will be searching for ways to distinguish themselves. A team sponsorship can do that. And, perhaps more importantly, it can put sportsbooks one step closer to the very consumers they’ll be targeting. But it all comes down to where a team resides. If a state where a team resides already has or is likely to legalize sports betting, those teams will be in high demand. Teams in the Northeast can expect to reap rewards soon since New Jersey and Pennsylvania are ready to go and neighboring states aren’t far behind. Those in Texas and Georgia may be waiting a while.

For Networks

Plan on a slow boil at the outset. This isn’t Daily Fantasy redux. When FanDuel and DraftKings flooded NFL telecasts with commercials at the start of the 2015 season, those were national rollouts. They were vying for customers from coast to coast. At this point, it looks unlikely that more than a handful of states will be up and running in time for the NFL season. There won’t be the critical mass to merit national ad buys. So while there almost certainly will be more betting-related content during sports programming, the financial impact likely won’t be felt until this is something closer to a national play.

For Unions

Last month the four major sports unions issued a rare joint statement expressing their intent to make sure athletes have a “seat at the table” as legislators, regulators and leagues determine what form U.S. sports betting will take. After the ruling, they reiterated that position. Player safety, game integrity, privacy and publicity rights are issues that the unions say they’re watching. Their voice likely will be loudest as the states and leagues consider the manner in which they’ll monitor whether players bet and how they’ll be treated if they do. There’s also a looming health concern. Studies in the United Kingdom have shown that pro athletes are at high risk for problem gambling 

For Colleges

For years, the NCAA has stuck steadfastly to its opposition to sports betting. But as the commercial potential has become more apparent, athletic directors at many programs seem to be warming to the idea — or at least accepting its inevitability and penciling out the revenue potential. The most instructive example of the swing came during a recent meeting to discuss the topic in West Virginia, which will be one of the first states to open for business. The NBA and MLB were present. But so were ADs from West Virginia and Marshall, along with Division 1A Athletic Directors’ Association head Tom McMillen. Now that PASPA is dead, expect schools in each state to take a far more vocal role in the debate, rather than awaiting marching orders from the NCAA.

Barkley

“Just because they got gambling legal, people who don’t gamble aren’t going to rush out to the casino or places like that. That’s my opinion.”

– Charles Barkley, TNT analyst
and basketball hall of famer

 



Bradley

“I regret the ruling. I think the court ignored the impact that the ruling will have on sports in America, and values you learn from sports. I mean, they’ve turned every basketball player, football player and baseball player into a roulette chip. And that doesn’t mean pros only.”

– Bill Bradley, former U.S. Senator
(D-N.J.) and basketball hall of famer


Saban

“I’m not opposed to people making wagers on events, sporting events, but I guess the thing that worries you the most is, how could it or would it affect the integrity of the game? That’s always a concern.”

– Nick Saban, University of Alabama
head football coach

Dallas Mavericks owner Mark Cuban made headlines — again — last week following the Supreme Court’s decision to overturn the ban on sports betting when he told ESPN, ”It doubled the value of professional sports franchises in a second.”

 

It may not happen that quickly, but just how much of a boost in value are franchises likely to see from this verdict? There is little doubt that there is new revenue available, including potential integrity fees, betting company sponsorships, and the continued sale of scoring data to third parties that resell to bookmakers.

However, there will also be new oversight costs, and any scandals that corrupt the integrity of the game would likely be harmful to franchise values. There is little reason to expect a quick jump in team values; it was not a factor in the talks that led to the pending sale of the Carolina Panthers for $2.275 billion, sources said.

“This has got to sort its way through the states and federal government,” said Bob Caporale, co-founder of sports mergers and acquisitions boutique GamePlan LLC. “There is a lot to be figured out and it won’t happen overnight.”

No one knows what the economic landscape will look like, he explained, so how can anyone assume there will be a big boost in value?

Sal Galatioto, a sports M&A veteran whose eponymous firm advises on team sales, said the Supreme Court decision at best helps at the margins. “Sellers aren’t looking at the decision and saying teams are worth a lot more,” Galatioto said. “This is not revolutionary.”

And Colin Neville, managing director at Raine Group, is similarly cautious. “I don’t think we will see a huge revenue bump for leagues and teams,” he said. Instead, the real benefit will come from fan engagement, and if that lifts TV ratings then that bodes well for the next round of TV deals for sports leagues, he said.

The leagues so far seem to think similarly. They are worrying publicly about integrity issues and don’t appear to be in a rush to sell gambling sponsorships. In fact, Cuban’s Mavs may not even be allowed to sell such deals because Texas is one of the states that has no plans to legalize sports gambling.

Of course, Cuban is not alone in his thinking. Chris Russo, a sports banker with Houlihan Lokey, is a big believer that the high court decision will cause a gusher of revenue to flow into sports.

“It clearly drives up franchise valuations, and soon,” he said.

Who is right? Maybe there is a bet to be made.

In this week’s First Look podcast, SBJ’s Abe Madkour and Bill King discuss our front-page story on the next steps in the wake of the Supreme Court ruling on sports gambling.

Dover International Speedway’s fall NASCAR weekend this year could become the first event by a major American sports league to offer at-venue gambling on events held there.

 

The Dover Downs Hotel & Casino, which is on the same grounds — and has common leadership — as the track, wants to add NASCAR to its sportsbook in the coming months if Delaware legalizes such wagering. Delaware Gov. John Carney said last week that full-scale sports gaming could be available at Delaware’s casinos before the end of June.

Denis McGlynn, president and CEO of Dover Downs, said that while there’s still much to be sorted out, he’s hopeful the company can pull off something it’s been trying to do for a decade and get NASCAR on the book before the October race weekend. “Given no opposition, we could certainly do it; it’s not logistically impossible at all,” he said.

Fans may soon be placing bets at then watching the action on the track.
Photo: getty images

Currently, Dover only offers three-game parlays on NFL games.

McGlynn said the track wants to make sure that NASCAR is open to the plan. So far, NASCAR has only issued a statement indicating it would review its options but had not yet taken a position.

“Without representing anything on behalf of NASCAR, my feeling is they would be open to it,” McGlynn said, adding, “The sport and really every sport is looking for a younger, energized audience and I can’t think of a better tool in the box to employ than something like this.”

NASCAR already hosts race weekends in Las Vegas, where casinos on The Strip offer betting on the sport. While there are no casinos on site at Las Vegas Motor Speedway, fans can bet using mobile devices.

Whether betting on NASCAR could spread to other tracks was unclear. Kansas Speedway, which is owned by International Speedway Corp., has a Hollywood Casino location on its grounds, which is co-owned by ISC, but the casino doesn’t offer sports betting.

“It does have the possibility or potential to really help draw additional interest to the sport,” McGlynn said. “When you have a betting interest involved, it has the potential to really increase both the experience on site and also once it gets mobile at home it’ll help rejuvenate TV ratings a little bit. I see it from the sports industry’s standpoint as an overall positive for sure.”